Rock Creek Golf Club. Essay

910 words - 4 pages

REVIEW OF FACTSRock Creek Golf Club is a public golf course owned by a private company and managed by Lee Jeffries. The case entails a debate about the golf carts used to take players around the course instead of walking around. The carts they already owned were old and there was a need for new golf carts.Approached by two salesman, Lee Jeffries was forced to chose to make a deal with one of them. Salesman A offered carts at $2,240 each and at the end of five years the expected salvage value was going to be $240 each.Salesman B proposed to lease the golf carts for $500 dollars per cart per year. This was payable at the end of the year for five years and the contract could be cancelled at any time with 90 days notice. This deal was easier to get out of.Either way $420 dollars in costs per cart per year were expected and revenue of $84000 per year was expected.EXECUTIVE SUMMARYThis case concerns whether to buy golf carts or lease golf carts. The financial implications are different based on the way the golf course acquires (buys or leases) use of the carts and on the terms used in acquiring them.The questions posed in this case bring to light the answers that would tell an owner of a golf course presented with the terms for sale and the terms for lease of golf carts that he was presented with, what he should do.We calculated what the interest payments would be each year if we paid for the golf carts each year for five years, and also the principal payment for each year. We also figured out what the interest rate would be for the lease of the carts with the terms that would presented. With this information available to us, along with the present values for each of the terms and options the owner of the golf course should be able to make an intelligent decision since the revenue and expenses for each option, that he expects to generate or incur, are the same throughout the course of the year.ISSUES1.Assume that in order to purchase the carts, RCGC would have to borrow $89600 at 8 percent interest for five years, repayable in five equal year end installments. Prepare an amortization schedule for this loan, showing how much of each year's payment is for interest and how much is applied to pay principal.2.Assume sles person B's company also would be willing to sell the carts outright at $2,240 per cart. Given the proposed lease terms, and assuming the lease is outstanding for five years, what interest rate is implicit in the lease? (Ignore tax impacts to the leasing company when calculating this implicit rate.) Why is this implicit rate...

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